Handout 7 - Econ 3140 Fall 2009 Handout#7(Review Session...

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Econ 3140 Fall 2009 Handout #7 (Review Session before 2 nd prelim) 1. (Spring 2009, Second Prelim, Question 1) Consider an economy with an aggre- gate production function: Y = AK 1 = 2 N 1 = 2 , depreciation is 10% , population growth is zero and workers save 1 4 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. (Question Three from Abel et.al., Chapter 9, numerical problems) C d = 200+0 : 8 ( Y ° T ) ° 500 r , I d = 200 ° 500 r , M d P = 0 : 5 Y ° 250 ( r + ° e ) , M s = 9890 , T = 0 : 25 Y +20 , G = 196 , ° e = 10 , and the full employment output equal to Y = 1000 . (a) Calculate the equilibrium real interest rate, price level, investment and consump- tion.
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