Tutorial 7 - INTERMEDIATE MACROECONOMICS(ECON 633 TUTORIAL...

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INTERMEDIATE MACROECONOMICS (ECON 633) TUTORIAL 7
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1. Suppose that the economy’s production function is Y=K 0.5 (AN) 0.5 and that the saving rate (s) is equal to 16% and that the rate of depreciation (d) is equal to 10%. Further, suppose that the number of workers grows at 2% per year and that the rate of technological progress is 4% per year. a. Find the steady-state values of The capital stock per effective worker : K/(AN) = (s/(δ+gA+gN))2= 1 Output per effective worker : Y/(AN)= (K/AN)1/2=1 The growth rate of output per effective worker : gY/(AN)= 0 The growth rate of output per worker : gY/N=gA=4% The growth rate of output : gY=gA+gN=6%
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b. Suppose that the rate of technological progress doubles to 8% per year. Recompute the answers to part (a). Explain. i. K/(AN) = (s/(δ+gA+gN))2= 0.64 ii. Y/(AN)= (K/AN)1/2=0.8 iii. gY/(AN)= 0 iv. gY/N=gA=8% v. gY=gA+gN=10%
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c. Now suppose that the rate of technological progress is still equal to 4% per year, but the number of workers now grows at 6% per year. Recalculate the answers to (a). Are people better off in (a) or
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