T/F CHAPTER10/11 BLANCHARD

The saving rate is always equal to the investment rate

True, S= I, Theory of Keynes, that the equality between saving and investment is derived from the equality between aggregate demand and aggregate supply.

A higher investment rate can sustain higher growth of

output forever.

Since savings rate = investment rate, savings rate does not effect on the long term growth of output per worker, increasing saving rate can lead to growth for a short period of time and then come back down to equilibrium.

If capital never depreciated, growth could go on forever.

False, due to decreasing return to scale, eventually increasing capital will lead to growth to smaller and smaller increase of growth until it leads to zero growth. At a certain point, adding more capital will do nothing to increase productivity.

The higher the saving rate, the higher consumption in

steady state.

Uncertain, one must know the golden-rule level of capital. If the saving rate is higher than the golden-rule then increasing saving rate would decrease consumption. (and vice-versa).

We should transform Social Security from a pay-as-you-go system to a fully funded system. This would increase consumption both now and in the future.

Uncertain,

The U.S. capital stock is far below the golden-rule level. The government should give tax breaks for saving because the U.S. capital stock is far below the golden-rule level.

True, If the U.S increased its saving rate, consumption would increase as well. If a well designed tax break increased the saving rate, in the U.S, consumption would likely increase as well.

Education increases human capital and thus output. It

follows that governments should subsidize education.

Uncertain, if most people gained higher education, aggregate output would not increase much. If most people gained higher education, then there will be a higher overqualified pool of job applicants and many people would become frustrated.

Writing the production function in terms of capital and effective labor implies that as the level of technology increases by 10%, the number of workers required to achieve the same level of output decreases by 10%.

If the rate of technological progress increases, the investment rate (the ratio of investment to output) must increase to keep capital per effective worker constant.

True, the process of technology is important to inputs and outputs. Technology advances depend on the rate at which firms invest on the applied expression of ideas that have an effect on capacity outputs.

In steady state, output per effective worker grows at the rate of population growth.

False, output is growing at the rate of the rate of population growth but output per effective worker remains the same.

In steady state, output per worker grows at the rate of technological progress.

True, since the growth rate of output depends only on rate of population growth and the rate of technological progress and changing in the saving rate do increase the steady state level of output per effective worker.

A higher saving rate implies a higher level of capital per effective worker in the steady state and thus a higher rate of growth of output per effective worker.

True, a higher savings rate influences the level of capital and output per worker (not growth)

Even if the potential returns from research and development (R&D) spending are identical to the potential returns from investing in a new machine, R&D spending is much riskier for firms than investing in new machines.

True.

The fact that one cannot patent a theorem implies that private firms will not engage in basic research.Because eventually we will know everything, growth will have to come to an end.

False

Technology has not played an important part in Chinese economic growth.

False