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midterm2_2010

# midterm2_2010 - Economics 102 Winter 2010 Professor Lee...

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Economics 102 Winter, 2010 Professor Lee Ohanian Midterm 2 (1) Each sub-question worth 7 points The economy is given by: Y t = AK 1 = 3 t L 2 = 3 t L t +1 = (1 + n ) L t ° K t +1 = I t ° °K t I t = sY t ; C t = (1 ° s ) Y t 1A. Show the model expressed in per-capita terms, using lower case letters for per-capita variables. 1B. Show the equations for the steady state of the economy. Draw a graph showing the steady state for capital. 1C. Suppose that a country is in a Golden Rule steady state, but then the population growth rate declines. Derive an equation for the steady state capital stock and show that the new Golden Rule savings rate rises in response to the lower population growth rate. 1D. Draw graphs of output, consumption, and investment over time that show how these variables move to the new steady state. (2) Each sub-question worth 10 points The Economy is given by: Y t = AK 1 = 3 t ( E t L t ) 2 = 3 E t +1 = (1 + g ) E t L t = 1 K t +1 = I t ° °K t I t = sY t ; C t = (1 ° s ) Y t 1

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2A,. Show the steady state equations for variables expressed in per e/ective
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midterm2_2010 - Economics 102 Winter 2010 Professor Lee...

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