Econ 402: Midterm Exam #I Solutions
Part I
Multiple choice -select only one answer per question (3 pts each- 21 total)
i. If capital grows at 2 percent per year and labor grows at 4 percent per year, capital’s
share is 1/2 while labor’s share is 1/2, and there is no technological progress and
the neoclassical assumptions hold, the growth rate of output will be:
(a) 1 percent per year.
(b) 2 percent per year.
(c) 3 percent per year (see slide 11-12 of Lecture 6)
(d) 4 percent per year.
ii. Over the past 50 years in the United States:
(a) output per worker, the capital stock per worker, the real wage, and the real
rental price of capital have all increased at the same rate.
(b) output per worker, the real wage, and the capital stock per worker have all
increased at the same rate, whereas the real rental price of capital has remained
about the same. (see slide 13 of Lecture 3)
(c) output per worker, the real wage, and the real rental price of capital have all
increased at the same rate, whereas the capital stock per worker has increased
faster.
(d) output per worker, the real wage, and the real rental price of capital have all
increased at the same rate, whereas the capital stock per worker has remained
constant.
iii. Assume that a General Motors plant in Mexico hires more workers to produce more
cars. US GDP increases if: