Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
7th Edition
ISBN: 9780134472669
Author: Blanchard
Publisher: PEARSON
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Textbook Question
Chapter 11, Problem 8QAP
Continuing with the logic from Problem 7, suppose that the economy’s production function is given by
- What is the steady-state level of capital per worker?
- What is the steady-state level of output per worker?
- What will be the new steady-state levels of capital per worker and output per worker?
- Compute the path of capital per worker and output per worker over the first three periods after the change in the depreciation rate.
Suppose that the economy is in steady state and that, in period t, the depreciation rate increases permanently from 0.10 to 0.20.
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Suppose some of the country's capital is suddenly destroyed. If the depreciation rate, savings rate, and production function remain unchanged, then the real growth rate will _____ in the short run and the steady-state level of capital will _____
increase, decrease, or stay the same?
Consider an economy’s production function is Y=K^1/3 N^2/3 and that both the saving rate and the depreciation rate are equal to 0.15. A. What is the steady-state level of capital per worker? B. What is the steady-state level of output per worker?
Now suppose that the economy has reached its steady-state in period t, and then, in period t+1, the saving rate doubles to 0.30. The depreciation rate remains constant at 0.15. C. Solve for the new steady-state levels of capital per worker and output per worker. D. Calculate the path of capital per worker and output per worker over the first three periods after the change in the saving rate.
Consider an economy with the following aggregate production function: Y = 3K1/3(AL)2/3
Capital grows through investment but also decays due to wear and tear at a constant rate δ per period. Assume that A is growing at the exogenous rate g, that L is growing at the exogenous rate n, and that households save a constant proportion s of their income.
(a ) Find the steady state level of the capital per effective worker (k*), output per effective worker (y*) and consumption per effective worker (c*) - in terms of the parameters of the model.
(B) What is the level of k (k**) that maximizes consumption?
(C) Given a depreciation rate of 7%, population growth rate of 2%, technological progress of 1% and a saving rate of 30%, calculate the steady state levels of k, y and c.
(D) To move to the level of capital that maximizes consumption, how should the saving rate be changed? Explain.
(E) Calculate the saving rate needed to reach the golden rule level of capital per effective worker.
Chapter 11 Solutions
Macroeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (7th Edition)
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