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

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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: A) is greater than the Golden Rule level. B) is less than the Golden Rule level. C) equals the Golden Rule level. D) could be either above or below the Golden Rule level. 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: A) a higher output level than before. B) the same output level as before. C) a lower output level than before. D) the Golden Rule output level. 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: A) labor equals the marginal product of capital. B) labor equals the depreciation rate. C) capital equals the depreciation rate. D) capital equals zero. 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 . a. What is the per-worker production function
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pr7 - Practice Questions, Chapter 7 EC 309 1. The formula...

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