Economics 31401
Second Prelim
03252009
Please Choose Five Problems
(If more than 5 are answered, only the first 5 will be graded)
1.
Consider an economy with an aggregate production function:
Y = A K
1/2
N
1/2,
,
Depreciation is ten percent, population growth is zero and workers save ¼ of
output.
Productivity is constant and equal to one.
(a) What is the steady state value of per capita output?
(b) What is the steady state value of per capita consumption?
(c) What is the steady state growth rate of per capita output?
(d) What is the Golden Rule capital stock?
(e) If A increases by 2% each year, what is the growth rate of steady state output per
worker?
(f) If A increases by 2% each year, what is the growth rate of the steady state capital
per worker?
2.
bT
b
Y
G
a
r
IS



+
=
)
1
(
:
P
M
fY
r
LM

=
:
Let’s assume that the short run level of output and real interest rate are determined
by G and T, so in the short run, the intersection of the IS and LM curves needn’t
be at full employment output.
Let’s be Keynesians and treat P as fixed, which
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 Spring '07
 MBIEKOP
 Economics, Macroeconomics, Steady State, Great Depression, per capita, steady state value, per capita consumption

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