Practice Questions, Chapter 7
EC 309
1.
The formula for the steadystate 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
steadystate
MPK
of 0.1, a depreciation rate of 0.1, and a saving rate of 0.2, then the steadystate
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, steadystate
consumption is at its greatest possible level when the marginal product of:
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5.
Assume that a country's perworker 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 steadystate capital per worker, production per worker, and consumption
per worker with
s
= 0.6.
c. Solve for steadystate 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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 Spring '09
 Roth
 Economics, golden rule level, C C B D B C C C C D C D B

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