QUIZ 5 Solution - ECO 407 Macroeconomic Theory Name:_ QUIZ...

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ECO 407 Macroeconomic Theory Name:__________________ QUIZ 5 Part I [45 points] 1. What is the main difference between the Solow model and the model from chapter 4 (production model)? What is the relationship between saving and investment? Show this result in our model, not forgetting to mention all the assumptions you are making to derive that result The main difference between the Solow model and the model from chapter 4 is the introduction of a function explaining capital accumulation. Using the expenditure approach we know that Y=C+I+G+NX. If we assume a closed economy without government this reduces to Y=C+I. Rearranging yields Y-C=I i.e. saving equals investment 2. What are stock and flows? Give some examples of each type of variable. A stock is a quantity that survives from period to period—a tractor, house, or semiconductor factory, for example. In contrast, a flow is a quantity that lasts for a single period—a withdrawal you make from your bank’s ATM. Stocks and flows are intimately
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This note was uploaded on 04/07/2008 for the course PHI 407 taught by Professor Monterio during the Spring '08 term at Punjab Engineering College.

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QUIZ 5 Solution - ECO 407 Macroeconomic Theory Name:_ QUIZ...

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