Problem Set 3

# Problem Set 3 - ECON 402 Homework#3(Chapter 3 Winter 2016...

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ECON 402 Homework #3 (Chapter 3) Winter 2016 Due: Monday January 25, 2016 1. Country A and country B both have the production function 𝑌 = 𝐹(?, ?) = 5? 0.35 ? 0.65 . a. What is the per-worker production function, 𝑦 = 𝑓(𝑘) ? b. Assume that neither country experiences technological progress, population growth in each country is 1.1% per year, and that 3.2% of capital depreciates each year. Assume further that country A saves 4.2% of output each year and country B saves 6.5% of output each year. Using your answer from part (a), find the steady-state level of capital per worker for each country. Then find the steady-state levels of income per worker and consumption per worker. c. Suppose that both countries start off with a capital stock per worker of 0.25. What are the levels of income per worker and consumption per worker? Remembering that the change in the capital stock is investment less depreciation, use a calculator or a computer

Unformatted text preview: spreadsheet to show how the capital stock per worker will evolve over time in both countries. For each year, calculate income per worker and consumption per worker. How many years will it be before consumption in country B is higher than consumption in country A? 2. Beginning from a steady state in the Solow growth model, explain how an increase in the saving rate will affect the levels and growth rates of capital and output per worker. (Note: discuss both the short-run and long-run impacts). 3. Based on the Solow model’s conclusions about population growth, comment on the effects of immigration on a country’s: (a) aggregate output level; (b) capital-labor ratio. (Note: in this case we’re concerned with the level of population, rather than the population growth rate.)...
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