midterm2mwanswersspring2008

midterm2mwanswersspring2008 - Economics 302 Spring 2008...

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Economics 302 Name _______________________________ Spring 2008 Answers: Second Midterm MW Student ID Number ____________________ April 14, 2008 Section Number _______________________ This 75 point midterm consists of three parts: a short response section with 5 short response questions worth 5 points each for a total of 25 points; a problem section with two problems worth 15 points each for a total of 30 points; and an essay section worth a total of 20 points. You will want to write legibly since illegible answers will be graded as wrong answers. You will want to present your work in an orderly fashion since a lack of organization will be interpreted as a lack of mental clarity and competent expression. You will want to make sure your answers are clear and easy to find on the test. All work should be done on the exam booklet and all answers should provide work and any formulas that are used. A lack of work for any answer may be penalized by a lower grade on that section. Calculators are fine to use. If there is an error on the exam or you do not understand something, make a note on your exam booklet and the issue will be addressed AFTER the examination is complete. No questions regarding the exam can be addressed while the exam is being administered. SCORE: Short Response 25 points (5 points each) 1. __________________ 2. __________________ 3. __________________ 4. __________________ 5. __________________ Problems 30 points (15 points each) 1. __________________ 2. __________________ Essay 20 points __________________ TOTAL 75 points __________________ 1
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I. Short Response (worth 5 points each and total 25 points) For each of the following statements write a brief answer. Make sure your answers are well organized, neatly written, and explicit. Do not exceed the space provided under the question: these are short responses. 1. (5 points) For this question use a Solow Growth Model with no technological change and no population change. An economy is initially in steady state at a level of capital per worker above the Golden Rule level of capital per worker. What must a social planner do to the savings rate to reach k* gold ? Compare the current steady state values of consumption per worker, investment per worker, and output per worker to those at the Golden Rule steady state. As capital per worker is currently above k* gold , the planner must decrease savings to get the economy to reach k* gold . By definition of the Golden Rule level of capital per worker the consumption per worker will be higher at k* gold . Since capital per worker will be lower at k* gold , output per worker must also be lower than at the current steady state. Since both the savings rate and output per worker are lower at k*
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midterm2mwanswersspring2008 - Economics 302 Spring 2008...

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