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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
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This note was uploaded on 03/10/2010 for the course ECON 3140 taught by Professor Mbiekop during the Spring '07 term at Cornell University (Engineering School).
 Spring '07
 MBIEKOP
 Macroeconomics

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