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AK_PS2

# AK_PS2 - ECON 102(Winter Quarter 2007 Answer Key for...

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Unformatted text preview: ECON 102 (Winter Quarter 2007) Answer Key for Problem Set 2 February 15, 2007 Problem 1 (Japan After World War II) During World War II Japan’s capital stock was destroyed to a consider- able extent and most economists would agree that Japan was not in steady state. The US, on the other hand, was in steady state virtually throughout the postwar era. Since growth rates are higher during the transition than in the steady state itself the policy advice should be: relax! According to the Solow-Swan model Japan’s growth rate should moderate automatically as the economy approaches its steady state. And indeed, Japan’s growth rates fell quite dramatically in the early 1990s and “Japan-bashing” was replaced a few years later by “China-bashing”. Problem 2 (The Solow-Swan Model and Planned Obsolescence) 1. ˙ ( Y L ) ( Y L ) = ˙ ( Ay ) Ay = ˙ Ay Ay + A ˙ y Ay = ˙ A A = x bracehtipupleft bracehtipdownrightbracehtipdownleft bracehtipupright since ˙ y = 0 in steady state That is, in steady state, output per person grows at the rate of technological progress x , irrespective of the depreciation rate δ . 1 2. Recall from part (1.) that ˙ ( Y L ) ( Y L ) = ˙ A A + ˙ y y Moreover, ˙ y = ˙ ( f ( k ) ) = ∂f ∂k ˙ k Let ¯ k 1 be the steady state capital stock with the original depreciation rate...
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AK_PS2 - ECON 102(Winter Quarter 2007 Answer Key for...

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