Econ 3140Fall 2009Handout #7 (Review Session before 2ndprelim)1.(Spring 2009, Second Prelim, Question 1)Consider an economy with an aggre-gate production function:Y=AK1=2N1=2, depreciation is10%, population growth iszero and workers save14of 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) IfAincreases by2%each year, what is the growth rate of steady state outputper worker?(f) IfAincreases by2%each year, what is the growth rate of the steady state capitalper worker?2.(Question Three from Abel et.al., Chapter 9, numerical problems)Cd= 200+0:8 (Y°T)°500r,Id= 200°500r,MdP= 0:5Y°250 (r+°e),Ms= 9890,T= 0:25Y+20,G= 196,°e= 10, and the full employment output equal toY= 1000.(a) Calculate the equilibrium real interest rate, price level, investment and consump-tion.
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