MACROECONOMICS W/CONNECT
18th Edition
ISBN: 9781307253092
Author: McConnell
Publisher: Mcgraw-Hill/Create
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Chapter 22, Problem 8RQ
To determine
True or false.
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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…
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
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- Suppose population growth is given by L, = L(1+7)', where Lo is the population today, L, is the population in t periods, and A is the population constant growth rate. If we do not know what value n takes but do know the values of Lo, L, and t, we can calculate 7 by punching into our calculators. Select one: a. ñ = (L/Lo)" b.n = [(L, - 1)/Lo]" O d.n = (L,ILOY - 1 e.ñ = (LILo) -1arrow_forward"Consider the simple production model studied in class, but with different exponents. Suppose that the production function is Cobb-Douglas. The exponent on capital is 0.1 and the exponent on labor is 0.9. The data for this economy is A=10, KO=300 and the initial population is LO-30. We will assume that everyone in this country works so that population equals employment and per-person GDP equals per-worker GDP. Now suppose that the country receives foreign aid that is used to invest in infrastructure and electric vehicles. As a result, over the next few years, the economyos capital stock doubles to K1=600. Fortunately, no one is killed during the hurricane. In the Capital market the Demand will and the Supply will As a result, the rental rate will Shift to the Right; Remain unaffected; Increase Shift to the Left; Remain unaffected; Fall Shift to the Left; Shift to the Right; Fall Remain unaffected; Shift to the Right; Fallarrow_forwardThe nominal U.S. GDP per capita was about $23,954 in 1990 and $48,375 in 2010. The GDP deflator of 2010 against 1990 was about 1.5159. What is the average annual growth rate of real GDP per capita during 1990-2010 approximately? O 1.44% O 2.33% O 2.02% O 1.98%arrow_forward
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