I. Multiple choice questions:

Q1. In the Solow model, holding the size of labour force L constant, when the capital stock K increases, (a) the marginal product of capital increases;

(b) the marginal product of capital decreases;

(c) the marginal product of capital does not change;

(d) none of the above.

2. According to the Solow growth model, if the national savings rate increases:

(a) the economy will grow at a faster rate forever;

(b) the capital per worker will grow faster forever;

(c) the economy will grow at a faster rate in the short run, and a new, higher, steady state level of capital per worker will be reached;

(d) the capital per worker will eventually decline.