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Unformatted text preview: Economics 102, First Midterm of Winter 2003, Sketch of Answers January 29, 2007 Part A 1) True. Before the marriage the action was registered and counted in GDP as services. Afterwards not any longer. 2) False. The &rst statement contradicts the second. 3) False. An increase in the savings rate leads to an increase in the long-run level of output per capita. 4) Uncertain. True if the parameters are the same in all countries. Could &nd a counterexample if di/erent. 5) False. Counterexample: in the Solow model capital and output grow at the same rate. Part B k** s*f(k) k* (d+n+x)*k s*f(k) (d+n+x)*k 1) There can be three intersections between sf ( k ) and ( & + n + x ) k as shown in the picture. In this case there are three steady-state levels: ;k & and k && : The equilibrium in the middle ( k & ) is unstable. The other two are stable. When capital is above k & then _ k = sf ( k ) & ( & + n + x ) k > , hence, capital tends to increase. When capital is below k & then _ k = sf ( k ) & ( & +...
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