ECON 102:
Introductory Macroeconomic Analysis
Sections A1 & B1
Spring, 2010
First Midterm Exam
Answers
1.
(10 minutes/20 points)
(a) (4 minutes/8 points)
According to the growth accounting formula:
%∆ (Y/L)= % ∆A + α % ∆ (K/L)
Using the information for China, where α=1/6
%∆ (Y/L) = .5 + (1/6) ×18 = 3.5
Hence, productivity growth in China is 3.5%
(b) (6 minutes/12 points)
We are told that the labor force has grown at 2% in China and 1% in the US.
Using this information, we can calculate the growth rate of the capital stock by
using the formula:
%∆ (K/L) = %∆K  %∆L,
where %∆K is the growth rate of the capital stock.
Plugging in the numbers for the US and China into the formula:
US:
3 = %∆K – 1, implies that %∆K = 4.
China: 18 = %∆K – 2, implies that %∆K = 20.
2.
(17 minutes/34 points)
(a) (2 minutes/4 points)
To compare living standards, we would look at per capita consumption.
C/pop = (1s) (Y/L) (L/pop)
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Since the only difference between the two countries is the consumption rate,
Partyland must now have a lower savings rate, s.
This means that (1s) is higher,
which, at least for now, implies higher per capita consumption.
(b) (5 minutes/10 points)
The higher consumption per person in Partyland today was facilitated by a lower
savings rate and therefore, reduced investment in capital stock.
In Sayvland, on the
other hand, a higher savings rate provides more funds for investment in capital
stock.
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 Spring '10
 SMITH
 Economics, Macroeconomics, Unemployment, labor force, per capita

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