Economics 102
Winter, 2010
Professor Lee Ohanian
Midterm 2
(1) Each subquestion 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 percapita terms, using lower case letters
for percapita 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 subquestion 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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 Spring '08
 Serra
 Economics, Steady State, Yt

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