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Unformatted text preview: A sketch of the answer to the 2 nd prelim, last term . Note. The course is taught differently, in view of the number of meeting per week is now twice, not three times. Please DO NOT spend too much time on old prelim problems. 1. Let, y= Y/N, k = K/N, A = 1, then y = k 1/2 At a steady state, sy = dk, or, (1/4)k 1/2 = k/10. k 1/2 = 5/2, or, Steady-state per-capita output = k = 25/4. So, at the steady state, k* = 25/4 (a) y* = (k*) 1/2 = 5/2. (b) Per capita consumption = (1-s) y* = (3/4)(5/2)=15/8. (c) The steady state growth of per capita output = 0. (d) The Golden State per capita output is where (1/2)k-1/2 = 1/10. That is: k = 25. (e) 4% (f) 4%. . 2. (a) Eliminate r, one can get, Y = (a+ G bT + M/P)/(1-b+f) = [(a +. M/P) + (1-b)G)]/(1-b+f). [Set T = G] One can then substitute in to solve for r. (b) What goes on is the effect of the balanced budget multiplier: (1-b)/(1-b+f). (c) In the Keynesian system, lack of spending causes depression. Out of each dollar of private income, only (1-s) is spent. So the government should tax the money away from the public and spend it to income, only (1-s) is spent....
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- Spring '07