MACROECONOMICS+SAPLING+6 M REEF HC>IC<
10th Edition
ISBN: 9781319267599
Author: Mankiw
Publisher: MAC HIGHER
expand_more
expand_more
format_list_bulleted
Question
Chapter 8, Problem 1QQ
To determine
The saving rate.
Expert Solution & Answer
Answer to Problem 1QQ
Option (a) is the correct answer.
Explanation of Solution
Option (a):
The production function is given as
Option (b):
With the given production function, the income of the person grows when the saving rate exceeds 8 percent. However, this is not the minimum value for this condition. Thus, option (b) is incorrect.
Option (c):
With the given production function, the income of the person grows when the saving rate exceeds 10 percent. However, this is not the minimum value for this condition. Thus, option (c) is incorrect.
Option (d):
With the given production function, the income of the person grows when the saving rate exceeds 12 percent. However, this is not the minimum value for this condition. Thus option (d) is incorrect.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
Q7 An economy has a Cobb–Douglas production function:
Y = Kα(LE)1−α
The economy has a capital share of 1/3, a saving rate of 24 percent, a depreciation rate of 3 percent, a rate of population growth of 2 percent, and a rate of labor-augmenting technological change of 1 percent. It is in a steady state.
a. At what rates do total output, output per worker, and output per effective worker grow?b. Solve for capital per effective worker, output per effective worker, and the marginal product of capital.
c. Does the economy have more or less capital than at the Golden Rule steady state? How do you know? To reach the Golden Rule steady state, does the saving rate need to increase or decrease?d. Suppose the change in the saving rate you described in part (c) occurs. During the transition to the Golden Rule steady state, will the growth rate of output per worker be higher or lower than the rate you derived in part (a)? After the economy reaches its new steady state, will the growth rate of…
Suppose an economy begins in steady state. By what proportion does per capita GDP change in the long run in response to each of the following changes?
(a) The investment rate doubles
(b) the depreciation rate falls by 10%
(c) The productivity level rises by 10%
(d) an earthquake destroys 75% of the capital stock
(e) A more generous immigration policy leads the population to double.
The long-run effects of an increase in the saving rate include...?
a. a higher level of productivity.
b. a higher growth rate of productivity.
c. a higher growth rate of income.
d. All of the above are correct.
Chapter 8 Solutions
MACROECONOMICS+SAPLING+6 M REEF HC>IC<
Knowledge Booster
Similar questions
- 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_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_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
- Investment in capital is important because it A-decreases productivity. B-leads to lower taxes. C-increases productivity. D-leads to higher taxes.arrow_forwardSuppose 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.arrow_forwardAssume 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_forward
- Assume 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_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_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
- Consider an Economy in steady state, with a Cobb Douglas Production function. They have a savings rate of 45% and a capital share of 2/7. Technological progress is 1%, population growth is 3%, and Depreciation is 5%. 1. Derive the Production function per effective worker and solve for steady state capital, output, and consumption per effective worker. 2. What is MPK in the steady state? Is this country saving too much or too little? How do you know? 3. What should you lower or raise the saving rate to, in order to reach the golden rule steady statearrow_forwardThe COVID-19 pandemic has caused an unprecedented increase in savings in many countries around the world. In the EU, the savings rate of households has jumped from 12.5% to 17%. In 2008-2009, it had moved from 12.5% to 14% (Dossche and Zlatanos 2020). Even if the source of 2020 surge in savings is different from the one of 2008, it is obvious that this increase does not result in more investment and growth. QUESTION: 1. With reference to the paradox of thrift discuss the appropriate approach by the government to get the economy out of economic downturn swiftlyarrow_forwardConsider an economy described by the production function Y=F(K, L)=?^0.4?^0.6 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.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
