Exam_2_practice_questions

Exam_2_practice_questions - EC 302 Exam 2 practice...

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EC 302 Exam 2 practice questions Fall 2008 Part I 1. Consider an economy with the following production function Y = F(K,L) = K 1/2 L 1/2 Saving rate is 40% per year; initial capital-labor ratio is 16; depreciation rate is 5% per year; population growth is 3%. a. What is the steady state capital-labor ratio (or per worker capital level), k*, income, output level y*, and consumption level c*? Show the steady state k*, y*, c*, and sy* on the graph. b. What is the first year consumption, saving, and investment? How much does the capital- labor ratio change in the first year? Show this on the graph c. Show the change to the steady state k*, y*, and sy* from: i. an increase in the initial capital-labor ratio ii. a decrease in the population rate 2. Show the effects of each of the following on the real money supply and real money demand and the equilibrium interest rate on the M/P- i graph, and on the LM curve on the Y – r graph. (It may be easier to make a graph for each case.) a. What is the effect of an increase in output/income in the economy?
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Exam_2_practice_questions - EC 302 Exam 2 practice...

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