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# pr7 - Practice Questions Chapter 7 EC 309 1 The formula for...

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Practice Questions, Chapter 7 EC 309 1. The formula for the steady-state ratio of capital to labor ( k * ), with no population growth or technological change, is s : A) divided by the depreciation rate. B) multiplied by the depreciation rate. C) divided by the product of f ( k * ) and the depreciation rate. D) multiplied by f ( k * ) divided by the depreciation rate. 2. If an economy with no population growth or technological change has a steady-state MPK of 0.1, a depreciation rate of 0.1, and a saving rate of 0.2, then the steady-state capital stock: 3. If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts output will grow and that the new steady state will approach: 4. In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of: Page 1

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5. Assume that a country's per-worker production is y = k 1/2 , where y is output per worker and k is capital per worker. Assume also that 10 percent of capital depreciates per year (= 0.10). a. If the saving rate ( s ) is 0.4, what are capital per worker, production per worker, and consumption per worker in the steady state? ( Hint: Use sy = δ k and y = k 1/2 to get an equation in s , δ , k , and k 1/2 , and then solve for k .) b. Solve for steady-state capital per worker, production per worker, and consumption per worker with s = 0.6. c. Solve for steady-state capital per worker, production per worker, and consumption per worker with s = 0.8. d. Is it possible to save too much? Why? 6. Assume that a country's production function is Y = K 1/2 L 1/2 .
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pr7 - Practice Questions Chapter 7 EC 309 1 The formula for...

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