# ps4 - levies a per worker tax of t Show graphically what...

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econ 3140-2 problem set four due Friday, February 27 attempt all questions 1 Let f ( k ) = 3 k 0 . 4 . The population growth rate is 5% and the depreciation rate on capital is 10% a.) Calculate k max , the maximum sustainable capital to labor ratio in the economy. Calculate k GR , the golden-rule capital to labor ratio. b.) Suppose s = 0 . 2. Find k ss , the steady state capital to labor ratio of the economy. What is consumption for worker at k ss ? 2 Show graphically what happens in the Solow model when: a.) The population growth rate or the depreciation rate increase. b.) The Solow residual decreases. c.) The savings rate increases. 3 In the Solow model, each worker has income y = f ( k ), for any given level of capital stock. Each worker saves sf ( k ) and consumes (1 - s ) f ( k ) (you should be able to convince yourself of this). Suppose the government
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Unformatted text preview: levies a per worker tax of t . Show graphically what happens in the Solow model. 4 Chapter 7, numerical problem 1 Money demand in an economy in which no interest is paid on money is M d P = 500 + 0 . 2 Y-1000 i a.) Suppose that P = 100, Y = 1 , 000 and i = 10%. Find real money demand, nominal money demand, and velocity. b.) The price level doubles from P = 100 to P = 200. Find real money demand, nominal money demand, and velocity. c.) Starting from the values of the variables given in Part (a) and assuming that the money demand fucntion as written holds, determine how velocity is aﬀected by an increase in real income by an increase in the nominal interest rate and by and increase in the price level. 1...
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