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RelativeResourceManager2

# RelativeResourceManager2 - Macro 110A Prof Irina A...

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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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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 low-income households.
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