5_ProductionAndGrowth_Answers - ECON 102 Winter 2008...

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ECON 102 Jooyong Jun Winter 2008 Section 102 and 103 Production and Growth (p.239 Q6) According to the spending allocation model in ch.7, a decrease in government spending results in, among other things, an increase in investment in the long run. Suppose the capital stock is $1 trillion and a fall in government spending causes $50 billion rise in investment. Determine the effect of the change in government purchases on long-run per capita output growth, using the growth accounting formula. (Assume that the coefficient of capital in the growth accounting formula is 1/3). K = $1 trillion and ΔK = 0.05 billion. If labor forces don’t change, Δk/k = Δ(K/L)/(K/L) = ΔK/K = 0.05. From Δy/y = ΔT/T + 1/3 × Δk/k, the long-run per capita output growth is about 0.017. (p.239 Q7) a. Suppose that a country has no growth in technology, and that capital and labor hours are growing at the same rate. What is the growth rate of real GDP per hour of work? Explain If the growth rate of capital and labor is α, Δk = K(1+α)/L(1+α) - K/L = 0. Therefore,
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This note was uploaded on 04/11/2008 for the course ECON 102 taught by Professor Rossana during the Fall '08 term at University of Michigan.

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5_ProductionAndGrowth_Answers - ECON 102 Winter 2008...

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