MACROECONOMICS W/CONNECT
18th Edition
ISBN: 9781307253092
Author: McConnell
Publisher: Mcgraw-Hill/Create
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Question
Chapter 22, Problem 7DQ
To determine
The policies of DVCs to promote economic development.
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Question 2
Suppose that the production function is Y = 10K5L5, the population growth rate is 15 percent
and the depreciation rate is 5 percent. What is the steady state level of k if the economy saves 30
percent?
O 400
O 225
100
O 1000
Question 3
Suppose that the production function is Y 10K SL5, the population growth rate is 15 percent
and the depreciation rate is 5 percent. What is the steady state level of y if the economy saves 30
percent?
250
350
150
O 450
- Suppose that work hours in New Zombie
are 200 in year 1, and productivity is $8
per hour worked. What is New Zombie's
real GDP? If work hours increase to 210
in year 2 and productivity rises to $10
per hour, what is New Zombie's rate of
economic growth? LO8.4
Question I - Solow Model without Population or Technology Growth
Consider the Solow growth model with no population growth and no technology growth, i.e., n = x = 0. Output is
created by a Cobb-Douglas production function combining Labor, Lt, and capital, Kt, such that output Yt is given
by
Y₁ = A+ KL
1-α
=
=
Recall that, without population growth, Lt Lo and assume that Lo 1. Furthermore, recall that, without
technology growth, At Ao and assume that A0 = 1. The law of motion for capital per worker is
=
kt+1 = (1 − 6) kt + sAtko.
(1)
Assume that the savings rate is s = 0.2, the depreciation rate is 8 = 0.1, and that the capital share is a = 0.3.
1. Use equation (1) to solve for the steady state level of capital, kss, (hint, replace kss in that equation on both
sides)
kss
=
What is the steady state level of capital? (Replace the numbers in the expression)
=
2. Suppose that this economy starts with ko 1. Does capital grow or fall over time? What is the maximum
level of capital per capita…
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