solutionsgrowth2010.doc - SELECTED PROBLEMS AND SOLUTIONS for economics growth The problems and their solutions are mainly from the Mankiw textbook The

# solutionsgrowth2010.doc - SELECTED PROBLEMS AND SOLUTIONS...

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SELECTED PROBLEMS AND SOLUTIONS for economics growth The problems and their solutions are mainly from the Mankiw textbook. The following topics in Mankiw are relevant for the economics growth students: Growth Accounting; Economic Growth theory; Government debt; Consumption; and endogenous labor supply; Additional economic problems for the economic growth students can be found in their textbook by Auerbach and Kotlikoff; Macroeconomics: An integrated Approach, MIT Press, 1998. The questions and their solutions are not provided in this document. This document also contains: 2 Extra credit questions: One on the Solow model with continous technological progress; one on optimal saving and optimal labor supply. If handed in the give extra credit if handed in. Towards the end of this document you also find The Econometric Exercise. Appendix 8. Growth accounting (“Tillväxtbokföring”) 7.-8. Economic growth theory.
Appendix of chapter .8. Growth accounting (“Tillväxtbokföring”) and growth ratesProblem 8.1: In an economy which is characterized by perfect competition in the goods and labor market, the owners of capital get two-thirds of national income, and the workers receive one-third. Assume a Cobb-Douglas aggregate production function.Problem 8.1A: The men stay at home in this economy, while the women work in factories. If some of the men started working outside the home so that the labor force increased by 5 percent, what would happen to the measured output of the economy? Does labor productivity (output per worker) increase, decrease or stay the same? Does total factor productivity (A) increase, decrease, or stay the same? One way to solve exercise., assume A=1, K=1, L0=1 andL1=1.05. Problem 8.1B: In year 1, the capital stock was 6, the labor input was 3, and output was 12. In year 2, the capital stock was 7, the labor input was 4, and output was 14. What happened to total factor productivity between the years?Problem 8.3: Assume an economy which is characterized by perfect competition in the goods and labor market, in which the owners of capital get one-third of national income, and the workers receive two-thirds. Assume a Cobb-Douglas aggregate production function.Assume that total output and total capital stock grow at 3.6 percent per year, and that labor input grows by one percent per year. Use the growth-accounting equation to divide output growth into three sources – capital, labor, and total factor productivity – how much of output growth would you attribute to each source?Problem 8.4. If GDP per capita in Sweden (in 1995 prices) in 1995 and 2000 were 194 and222 thousands of kronor, what was the average annual rate of economic growth during this 5-year period?Problem 8.5. If a variable during a 30-year period increases by 54 percent, what averageannual growth rate does this correspond to?Problem 8.6. If the growth rate of GDP per capita was 2 percent between 1960 and 1990, andthe population growth rate was 3 percent during the same period, what was the growth rate ofGDP during this period?Problem 8.7: Assume that GDP per capita in Sweden and Zambia in 2002 were 16000 and