Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
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Chapter 6, Problem 7AP
To determine
To know: The long run growth rates of physical capital, human capital and output of an economy.
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Consider an economy described by the production function: Y = F(K, L) = K^0,3L^0,7
A. What is the per-worker production function?
B. Assuming no population growth or technological progress, find the steady-state capital stock per worker, output per worker, and consumption per worker as a function of the saving rate and the depreciation rate.
Suppose the people in a certain economy decide to stop saving and instead use all their income for consumption. They do nothing to add to their stock of human or physical capital. Discuss the prospects for growth of such an economy.
Suppose, in a country, the production function is Y = K1/3L2/3.1. National saving rate is 25 percent. Capital depreciates at the rate of 10% and the initial value of capital per labor is 4. Find the steady-state values of capital per worker, output per worker, and consumption per worker.2. Suppose, saving rate decreases to 20 percent. Find the steady-state values of capital per worker, output per worker, and consumption per worker. Show the changes between 1) and 2) on a graph (label your graph)
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- Assume that the rate of growth of population equals 0. Suppose that there is a sudden increase in the rate at which capital depreciates . The production function remains unchanged . a. On a graph , illustrate the effects of this change on the steady - state level of capital per worker if saving rate remains unchanged b. Describe the effects of this change on the Golden Rule level of capital per worker , and explain your answer .arrow_forwardAssume a hypothetical society that decides to reduce consumption (production of consumption goods) and increase investment (production of capital goods). How would this change affect economic growth? What groups in society would benefit from this change? What groups might be hurt?arrow_forwardUsing the production function Real GDP = T (L, K), and the LRAS curve, describe the process by which a decline in interest rates impacts the use of capital and economic growth.arrow_forward
- Assuming an economy is at steady state, with the use of an appropriate diagram withdescriptions illustrate the impact of a reduction in the saving rate on capital perworker and output per worker.arrow_forwardAssume the economy is initially in its balanced growth state. Suppose policymakers pursue policies that would increase the saving rate to s1=0.3. Draw a carefully-labelled diagram to illustrate the effect of the change in the saving rate on the economy in the long run. Explain the effect of the change in saving rate on steady-state capital per effective worker and steady-state consumption per effective worker?arrow_forwardAssume that the growth rate of the capital stock in each period is determined by the level of output in the previous period. 1) An economy of 80 million people has ten percent of them engaged in research and development, where their productivity is 0.0035. The economy is on a balanced growth path, when suddenly 2.88 million people move from goods production into R&D, raising the fraction there to 13.6 percent. In the one period that begins with this labor reallocation, the growth rate of output is ________. [Refer to the instruction above.] A) 2.8% B) 0.0% C) 3.8% D) 2.2%arrow_forward
- Say an economy begins with an initial level of capital per worker, k0, that is above its steady state level of capital per worker, k*. All else equal, what will happen to output per worker and capital per worker?arrow_forwardMany countries, including Pakistan, import substantial amounts of goods and services from other countries. However, economists claim that a country can enjoy a high standard of living only if it can produce a large quantity of goods and services itself. Can you reconcile these two facts? (Maximum 100 words). Given the production function Y= AF (L, K, H, N), explain the determinants of productivity. ( Maximum100 words). Population growth has a variety of effects on productivity. Explain this statement and justify your answer. (Maximum 200 words).arrow_forwardQ)If the economy is in a steady state, then A. both consumption per worker and capital per worker are decreasing. B. both consumption per worker and capital per worker are constant. C. consumption per worker is decreasing but capital per worker is constant. D. consumption per worker is constant but capital per worker is decreasing.arrow_forward
- an economy is given by y=k^( 1/3). The depreciation rate is 16%, the saving rate is 26%, the growth rate of the labor force is 4%, and the growth rate of labor-augmenting technological change is 4%. Given these features, this economy's steady-state level of capital per effective worker is (Enter your response rounded to two decimal places.)arrow_forwardAn economy has the per-worker production function yt=f(kt)=4kt)0.4, where yt is the output per worker and kt is the capital-labor ratio. The depreciation rate is 0.15, and the population growth rate is 0.04. Saving is St=0.5Yt, where St is total national saving and Yt is total output. The slope of the per worker production function is given by f' (kt)=1.6kt-0.6 . What is the steady state value of capital-labor ratio, k*? Round your answer to at least 2 decimal places.arrow_forwardSuppose that the production function for an economy is given by Y = K1/4L3/4. The depreciation rate is 4%, the saving rate is 12%, Suppose that now there is labor augmenting technology, the rate of labor-augmenting technological is 2 percent. At what rate does total output, output per worker, and output per effective worker grow?arrow_forward
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