AK_1M2003 - Economics 102 First Midterm of Winter 2003...

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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) 0 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: 0 ; 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 > 0 , hence, capital tends to increase. When capital is below k ° then _ k = sf ( k ) ° ( ° + n + x ) k < 0 , capital tends to decrease.
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