E304SP07Hw12Ans - ThePennsylvaniaStateUniversity...

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The Pennsylvania State University Spring 2007 Department of Economics Clifford Economics 304 Homework #12 – Answer Sheet 1. According to the economic growth theory that we have studied, how would each of the following events affect per capita consumption in the long-run (i.e., after return to the steady state). . Illustrate graphically and explain. In all of the parts, we can assume that the rate of saving is less than the golden rule level of saving, so that a reduction in steady-state output per worker leads to a reduction in steady-state consumption per worker. a. A terrorist attack destroys a portion of the nation’s capital stock. Assume that the economy begins (pre-attack) in the steady state. The destruction of a portion of the nation’s capital will reduce the capital-labor ratio to a level that is below the steady-state level. (We are assuming here that the population and labor force were not reduced significantly by the war.). We know that when the
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This note was uploaded on 10/29/2008 for the course ECON 304 taught by Professor Stone,mistyriano,alejandro during the Spring '07 term at Pennsylvania State University, University Park.

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E304SP07Hw12Ans - ThePennsylvaniaStateUniversity...

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