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Answers PS4 - Econ 3140 Fall 2009 Problem Set 4 Answer Key...

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Fall 2009 Problem Set 4 Answer Key 1. 7% 2. (a) aK K K = 0 : 3 2000 10000 ± = 6% (b) aN N N = 0 : 3 250 2000 ± = ± 8 : 75 (c) Y Y = 500 4000 = 12 : 5% , A A = Y Y ± aK K K ± aN N N = 12 : 5% ± 6% ± (8 : 75%) = 15 : 25% on the steady state, because there has been no change in s , f , n or d . Instead, k is reduced temporarily, but equilibrium forces eventually drive k to the same steady-state value as before. (b) Immigration raises n from n 1 to n 2 in the ±gure below. The rise in n lowers steady-state k , leading to a lower steady-state consumption per worker. (c) The rise in energy prices reduces the productivity of capital per worker. This causes sf ( k ) to shift down from sf 1 ( k ) to sf 2 ( k ) in the ±gure below. The result is a decline in steady-state k . Steady-state consumption per worker falls for two reasons: (1) Each unit of capital has a lower productivity, and (2) steady-state k is reduced. (d) A temporary rise in

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Answers PS4 - Econ 3140 Fall 2009 Problem Set 4 Answer Key...

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