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Macro 110A
Prof. Irina A. Telyukova
Homework 7 Solutions
Blanchard, 4th Edition.
Chapter 10
:
1.
a.
True.
b.
False.
c.
False.
d.
False.
e.
True.
f.
False.
g.
True.
3.
a.
63
9
*
7
81
49
=
=
=
=
N
K
Y
b.
N
K
N
K
N
K
Y
new
2
2
2
2
2
=
=
=
.
So if both K and N double, then Y doubles.
c.
Yes. When the quantities of capital and labor both are x times as big, then Y
becomes x times as big.
d.
N
K
Y
=
. So :
N
K
N
K
N
N
K
N
Y
=
=
=
e.
K/N=4 implies Y/N=2.
K/N=8 implies Y/N=2.83.
Output per worker less than
doubles.
f.
No. A doubling of the input K/N does not lead Y/N to double.
g.
No.
In part (f), we are looking at what happens to output when we increase
capital only, not capital and labor in equal proportion.
There are decreasing
returns to capital.
5.
a.
Take the total derivative of the production function:
dK
K
dY
K
K
Y
2
1
2
1
2
1
1

=
=
=
Divide by Y on both sides :
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View Full Document K
dK
dK
K
K
dK
K
Y
dK
K
Y
dY
dK
K
dY
5
.
0
2
1
2
1
2
1
1
2
1
2
1
2
1
2
1
2
1
=
=
=
=
=




So,
Δ
Y/Y = .5
Δ
K/K
Growth rate of output = 1/2 growth rate of capital
b.
The required rate of growth of capital must be twice as large, so 4 %.
c.
K/Y increases. K grows at 4% while the growth rate of output is 2%.
d.
No.
Since capital is growing faster than output, the saving rate will have to
increase to maintain the same pace.
Eventually, the required saving will exceed
output.
Capital must grow faster than output because there are decreasing returns
to capital in the production function.
Chapter 11:
1.
a.
True, if saving includes public and private saving.
b.
False.
c.
True.
A constant saving rate would produce a positive but declining rate of
growth.
d.
Uncertain.
e.
False.
f.
Uncertain.
The U.S. capital stock is below the golden rule, but that does not
necessarily imply that there should be tax breaks for saving.
Even if the tax
breaks were effective in stimulating saving, the increase in future consumption
would come at the cost of current consumption.
g.
False.
Even if you accept the premise (that educational investment increases
output, as would be implied by the Mankiw, Romer, Weil paper), it does not
necessarily follow that countries should increase educational saving, since future
increases in output will come at the expense of current consumption.
Of course,
there are other arguments for subsidizing education, particularly for lowincome
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This note was uploaded on 12/05/2010 for the course ECON 110A taught by Professor Irinatelyukova during the Spring '10 term at San Diego.
 Spring '10
 IrinaTelyukova
 Macroeconomics

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